The Resolution concerning consumer price indices, adopted by the Seventeenth International Conference of Labour Statisticians (ICLS) (Geneva, 2003)¹, states the following:

“1. The CPI is a current social and economic indicator that is constructed to measure changes over time in the general level of prices of consumer goods and services that households acquire, use or pay for consumption.

2. The index aims to measure the change in consumer prices over time. This may be done by measuring the cost of purchasing a fixed basket of consumer goods and services of constant quality and similar characteristics, with the products in the basket being selected to be representative of households’ expenditure during a year or other specified period. Such an index is called a fixed-basket price index.

3. The index may also aim to measure the effects of price changes on the cost of achieving a constant standard of living (i.e. level of utility or welfare). This concept is called a cost-of-living index (COLI). A fixed basket price index, or another appropriate design, may be employed as an approximation to a COLI.”

A consumer price index is usually estimated as a series of summary measures of the period-to-period proportional change in the prices of a fixed set of consumer goods and services of constant quantity and characteristics, acquired, used or paid for by the reference population. Each summary measure is constructed as a weighted average of a large number of elementary aggregate indices. Each of the elementary aggregate indices is estimated using a sample of prices for a defined set of goods and services obtained in, or by residents of, a specific region from a given set of outlets or other sources of consumption goods and services.

Consumer price indices are used for a variety of purposes, including:

a) general economic and social analysis and policy determination;

b) negotiation or indexation, or both, by government (notably of taxes, social security benefits, civil service remuneration and pensions, licence fees, fines and public debt interest or principal) and in private contracts (e.g. wages, salaries, insurance premia and service charges) and in judicial decisions (e.g. alimony payments);

c) establishing "real" changes, or the relationship between money and the goods or services for which it can be exchanged (e.g. for the deflation of current value aggregates in the national accounts and of retail sales); and

d) price movement comparisons done for business purposes, including inflation accounting.

Sub-indices rather than the all-items index may be suitable for some of the above uses.

Weights are the relative expenditure or consumption shares of the elementary aggregates estimated from available data. In this connection, the Seventeenth ICLS recommended the following:

"23. The two main sources for deriving the weights are the results from household expenditure surveys (HESs) and national accounts estimates on household consumption expenditure. The results from HES are appropriate for an index defined to cover the consumption expenditures of reference population groups resident within the country, while national account estimates are suitable for an index defined to cover consumption expenditures within the country. ...

24. The information from the main source (HESs or national accounts) should be supplemented with all other available information on the expenditure pattern. Sources of such information that can be used for disaggregating the expenditures are surveys of sales in retail outlets, point-of-purchase surveys, surveys of production, export and import data and administrative sources. Based on these data the weights for certain products may be further disaggregated by region and type of outlet. ..."

The Seventeenth ICLS also recommended that the prices used for the computation of the indices should be the:

"54. ... actual transaction prices, including indirect taxes and nonconditional discounts, that would be paid, agreed or costed (accepted) by the reference population. … Tips for services, where compulsory, should be treated as part of the price paid.

55. Exceptional prices charged for stale, shopsoiled, damaged, or otherwise imperfect goods sold at clearance prices should be excluded, unless the sale of such products is a permanent and widespread phenomenon. Sale prices, discounts, cut prices and special offers should be included when applicable to all customers without there being significant limits to the quantities that can be purchased by each customer.

52. Prices should be collected in all types of outlets that are important, including Internet sellers, open-air markets and informal markets, and in free markets as well as price-controlled markets. ..."

The scope of consumer price indices can vary between countries, in terms not only of the types of households or population groups covered, but also the geographic coverage.

National practices also differ as regards the treatment of certain issues relating to the computation of consumer price indices, including seasonal items, quality changes, new products, durable goods and owner-occupied housing. There are differences in the methods used for collecting prices and for compiling the indices. As a result, care should be taken when using the consumer price indices presented in these tables, particularly for the purposes of collective bargaining, indexation or deflation. The indices should only be used if the coverage of the consumer price index corresponds closely to that of the subject of negotiation, indexation or deflation.

Information on the scope, definitions and methods used for compiling the consumer price indices presented in this chapter is given in ILO: Sources and Methods: Labour Statistics, Volume 1: Consumer price indices, Third edition (Geneva, 1992) and on the ILO's statistical web site at laborsta.ilo.org.

Table 7A presents the general consumer price index for all groups of consumption items combined.

Table 7B relates to an all-items index excluding rent. Rent has been excluded from the all-items index to make the rates of price change more comparable across countries, although it does not eliminate all the difficulties encountered when making such comparisons. This index is intended to mean primarily an index without rent (actual and/or imputed). However, if such an index is not available at the national level or if it is too difficult to compute one, then for practical purposes countries provide one that excludes the housing component. If this is the case, a footnote indicates the particular exclusions (for example, the whole housing group, electricity, gas and other fuels, expenditure on maintenance and repairs of dwelling, etc.).

Table 7C relates to a food index including nonalcoholic beverages only. Where alcoholic beverages and/or tobacco are included, this is indicated in footnotes.

Tables 7D to 7F give three other major group indices, respectively for "Electricity, gas and other fuels", "Clothing (including footwear)" and "Rent". These group indices, along with the food index, are components of the general index. For most countries, the general index and the general index excluding rent cover, in addition to these four group indices, all other main groups of expenditure, i.e. "alcoholic beverages and tobacco", "furniture, household equipment and routine household maintenance", "health", "transport", "communication", "recreation and culture", "education", "restaurants and hotels" and "miscellaneous goods and services". Indices relating to these latter groups are not shown separately in the Yearbook, because of the variations between countries in the composition of the groups.

The general and the group indices shown in the tables refer to annual averages, although these are compiled in most cases monthly and in a few cases quarterly or biannually. Annual averages are derived from the original series

As the original base periods of the national series vary, a uniform base period (2000) has been adopted for the presentation of the data. As many as possible of the series have been recalculated by dividing the index for each date shown by the index for the year 2000 and multiplying the quotient by 100. Where data are available only for periods subsequent to 2000, the indices are generally presented with the first available calendar year as base. This operation does not involve any change in the weighting systems, etc., used by the countries.

If a new series is sufficiently comparable with the former series, the two are linked to form a continuous historical time series. If a series has been discontinued and has been replaced by another which cannot be reconciled with the former by linking or some other estimation techniques, the break is indicated by a footnote.

¹ For the full text of the resolution, see ILO: Seventeenth International Conference of Labour Statisticians, Report of the Conference(Geneva, 2004) or the ILO Bureau of Statistics’ web site: http://www.ilo.org/stat.